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Regulatory: Having employees perform work in California can be risky business

Doing business in California is an important strategic objective for many companies. But as enticing as California’s economy may be, its unique employment laws can pose serious liability risks for the unaware.

1. Wage and hour. One need look no further than the wage and hour arena to understand this point. Several new or recently litigated California wage and hour requirements showcase the importance of developing targeted California employment policies.

Vacation. The law regarding paid vacation is a perfect example: Under federal law, and in most other states, employers may adopt so-called “use-it-or-lose-it” policies whereby employees forfeit any unused vacation at year’s end. By contrast, California’s Labor Code defines vacation as “wages,” and California courts have prohibited policies that result in any forfeiture of vacation.

Suitable seating.California employers must provide employees with suitable seating when the nature of the work reasonably permits. If a particular position does not permit sitting down, employers must nonetheless provide seats for employees when they are not actively engaged in their duties. Although the law has been largely ignored for decades, many large employers have recently fallen victim to representative lawsuits (brought pursuant to yet another unique California law, the Private Attorney General’s Act, which allows employees to file claims seeking sizeable penalties for violations of various provisions of the California Labor Code).

Itemized wage statements.California requires employers to furnish employees with written or electronic itemized wage statements on a bimonthly basis, or in conjunction with wage payments. Such wage statements must contain the following detailed information:

a) Gross wages

b) Net wages

c) Total hours worked (except for overtime exempt employees)

d) The number of piece-rate units earned and the applicable piece rate for employees paid on such a basis

e) All deductions

f) The dates of the pay period

g) The employee's name and the last four digits of his Social Security or employee ID number

h) The name and address of the legal entity that is the employer

i) All applicable hourly rates in effect during the pay period and the number of hours worked at each rate

Employees “injured” by noncompliant wage statements may recover up to $4,000 for violations. “Injury” is defined broadly to mean simply that the employer has provided inaccurate or incomplete information such that the employee cannot easily determine any of the required items from the wage statement alone.

As these examples suggest, the importance of ensuring compliance with California’s unique wage and hour laws cannot be overstressed. And these laws usually apply even to non-California residents who work in California only temporarily. In 2011, the California Supreme Court, in Sullivan v. Oracle, held that California overtime rules applied to days or weeks worked in California by non-residents on a temporary basis for a California employer.

2. Non-compete agreements.Under California law, non-compete agreements that seek to prevent employees from working for a competitor after their employment ends are generally unenforceable. This is true even if the employee had access to the employer’s trade secrets. And those employers that require their California employees to sign the company’s standard non-compete agreement that applies outside of California may be liable for a violation of Labor Code Section 432.5—which prohibits employers from requiring any applicant or employee to agree to any term or condition of employment that the employer knows to be prohibited by law—and for unfair competition under California Business & Professions Code Section 17200.

3. Pregnancy leaves. California’s pregnancy disability leave law entitles employees to up to four months of leave (with continuation of health benefits) for disabilities caused by pregnancy, childbirth and related medical conditions, without any requirement that the employee have worked for the employer for any specified length of time. These four months are in addition to 12 weeks of leave afforded for the birth of a child under the California Family Rights Act, which is the California analog to the federal Family & Medical Leave Act. Thus, in California, a pregnant woman may be entitled to up to seven months of protected leave in connection with pregnancy and child birth (i.e. four months for a pregnancy-related disability and 12 weeks to bond with her child after birth).

The above examples are by no means exhaustive; there are a multitude of other employment laws that are unique to California. Because of the potential for significant liability from non-compliance, risk-averse employers may wish to seek counsel if they have employees performing work in California.